5SM Comes Third in European Elections
The UK was not the only country to see a shock result in the recent MEP elections. In Italy, early exit polls on the day of the elections suggested that La League had beaten the Five Star Movement (5SM) by a small margin.
However, the final results showed The League actually went on to gain 34.3% of the vote. This marks a stark improvement from the prior 17% gain in 2018. Furthermore, The League gained over double the votes 5SM did. They scored only 17.1% of the vote, down sharply from the prior 33% gain in 2018.
5SM even came behind the PD party this time. They came in second with 22.8% of the vote, up 4% from the 2018 result. Forza Italia and Fratelli d’Italia both came in last with 8.8% and 6.5% respectively.
Shift in Power
The results show a dramatic sea shift in sentiment for the two main parties. Such a wide gap has not been predicted by opinion polls along the way. Consequently, the temptation is now there for Matteo Salvini, leader of La League, to push for an early election.
Furthermore, with Berlusconi’s Forza Italia party and the Fratelli d’Italia party doing well, the chance of a center-right alliance between those three parties has increased with them together gaining 49.5% of the vote, which could see an absolute majority in Italian parliament.
Salvini Highlights New Agenda
Appearing shortly after the election results, Salvini didn’t indicate that he was in any rush to press for early elections. Indeed, the La League leader said that he would now be looking to push for a reshuffle in the current government though was keen to promote a list of priorities that the government should now be dealing with as a matter of urgency.
Salvini’s agenda includes issues such as the Turin-Lyon high sped railway, the extension of the regional autonomy and introducing a flat tax system. These are all issues which had been put on hold due to the stalemate with the 5SM’s own political agenda. If 5SM is willing to accept La League now runs the show, then we could see the current government remain as is, just with La League holding the reigns. However, if 5SM causes any issues for Salvini, we will likely see early elections called.
Could EU Budget Conflict Return?
Salvini’s gain in the polls means that we could also see a resurrection of the EU budget conflict which flared up last year. Salvini noted during his press conference that Italy is due to receive a letter from the EU Commission requesting clarifications on the past increases in the debt/GDP ratio.
The League leader noted that he felt Italian citizens had mandated him to bring back the discussion around outdated fiscal parameters with the EU and other European partners. If these discussions take a negative turn, we could see the EU re-opening plans to penalize Italy for running an excessive deficit. This would in-turn increase political fragmentation and lead to early elections in Italy.
One interesting chart so far this week, is EURGBP which is currently threatening a topside break. EURGBP has been pushing against the .8840 level recently, which was key resistance earlier in the year. If we see a break above now, the market has a clear run up to the .8935 level and beyond there, the .9097 level. Any retracement lower from here should find support at a test of the .8721 level.